Friday, September 30, 2011

Tomorrow marks the implementation of the bit of the Dodd-Frank Wall Street Reform and Consumer Protection Act in which debit card fees are capped. At its heart is a big battle between big retail (Wal-Mart, Target, and the like) versus big money (mega banks). In a rare moment of political weakness during the financial crisis, big retail swooped in and muscled away the big banks from the trough long enough to get congress to do something for them for a change. Despite this raw, ugly power play, the net result should be a positive, I think, provided you're not one of those people who think the rich know what's best for us as the natural masters of their domain. Let me explain.

At the technical heart of this law, debit card fees are capped at twenty four cents each. Average swipe fees are much higher than that. For example, we pay sixty five cents. Yes, you are yawning, but before you doze off, let me tell you that for a small business like mine, this is pretty big. With about 300 debit card uses a month, we save about $1,400 each year in fees. With our tiny profit margins of around 5%, we would need to sell $2,300 each month in games to come up with that level of extra profit. That's like an extra Saturday every month for us. Wouldn't you like an extra Saturday each month?

Critics will point out that banks will now be "forced" to charge consumers more for debit card use to offset their losses. If by "losses" you mean halving the profit on the $20 billion a year they make in interchange extortion, well cry me a river. They've managed to increase their profit margins from retail banking from modest levels to incredible heights over the years through various schemes, this being one. The system gradually squeezes retailers without recourse, other than to stop taking credit cards. It's a system that's so insanely profitable, especially compared to places like Europe, that they don't even implement technology to counter card fraud. It's cheaper to just suck it up while charging me a bogus fee each month to pretend I comply with make believe security. Maybe they should take fraud seriously if they want to re-coup their lost profits. But what about the consumer?

If the mega banks like Bank of America want to charge extra for debit card use, the consumer can tell the banks to suck it and move to a credit union or neighborhood bank, something I can't believe hasn't happened wholesale after the crisis of the past few years (I recommend Mechanics Bank). The big banks are not our masters and you don't have to do business with them.

So here's the good part. We're going to take billions of dollars from them and give it to main street. In my case, I've got $1,400 to spend. Do you think I'll put it in my hedge fund account? How about buying that new Ferrari I've been eying? Or perhaps I'll just add it to my portfolio where it will be thrown atop the stockpile of over a trillion dollars American corporations are sitting on, claiming economic uncertainty? Hell no.

My $1,400 will go to adding inventory from game companies, getting a few new fixtures from local manufacturers, hiring staff from the local community, or even paying myself more. As a middle class kinda guy, my personal expenses go back into the local community any way you slice it. Heck, I may even pay the banks back some of the money I owe them. So it's a win for main street and a win for you. Don't let the evil overlords tell you different. Definitely don't put up with them charging you my fees.

Sunday, September 25, 2011

Each year around this time I compile a list of our top selling board and card games. Usually I separate this list, which although appearing convenient, often devolves to discussion of what's truly a board game and truly a card game (not to mention LCGs and other models). So here they are together, as most game stores track them, as I've learned.

A few things. First, the top selling game is on the top left. Game 51 is on the top right, so it goes down and to the left. Second, this is ranked by profit, as opposed to quantity sold. Third, all expansions are stripped from the list, although a stand-alone expansion that can be played by itself is exempt. And fourth, this is just our list and has little relation to other stores lists . It doesn't mean anything..

A lot of these games have stories around them about how they were reviewed in the newspaper for a while, how an employee was all excited about a game and sold the heck out of it, or even how we ordered too many and had a giant sale (which actually tends to push down a game, *cough* Lemming Mafia *cough*).

So why post it at all? It's kind of interesting to see. From a blog perspective, they're the most popular posts. Perhaps it's a heads up that you missed a game or a kind of wake up call to learn your cherished favorite is panned by our board game community. Feel free to chime in and discuss. That's what blogs are for, right?

Finally, I should mention that we're in a board game reboot phase at the moment, having dropped our selection from a high of about 1500 board and card games to roughly half that number. It's not that our sales are down, they're actually up in double digits. It's that sales have consolidated sharply into top sellers, with less risks taken with those one-off games, usually Euros. So we sell a ton more Settlers of Catan, but quite a bit fewer Z-man pretty good "seen at Essen" imports, for example. It's a little dangerous to cut your inventory so harshly when sales are up, but there was a lot of brush that needed to be cleared. That should also free us to ramp up heavily during the Fall, which is prime season for new releases. Why we held on to them for so long is a complex story involving competitors, local tastes, expectations of what we think we should carry, and the fact that I hate letting go of any game I know how to play.

Friday, September 23, 2011

Owning a game store can sometimes feel like being in the movie, The Matrix. With thousands of products on the shelves, it's difficult to know much about all of them, so they can fall into the category of "widget." We have as many products as your average Costco in about one percent of the space. Products have a cost, a profit margin, a turn rate, and oh yeah, they're games too, but that's not always relevant when you're looking at them.

When a product is a "one shot" release or like half our products, doesn't get re-ordered, it reinforces widgetness as there's no incentive to get to know them. Over time, if you're not vigilant, games can come and go without you having even read the summary on the box, which can make you a bit jaded. As for one shots, why should I care about what's in the latest Magic card pack that I can never re-order again that will sell out forever by the end of the day? Does it really matter? There's not even a sales need to know what's in the box. The green zeroes and ones clearly show on their black background.

When in Matrix mode, improvements or repairs on the property all look like expenses with no real benefit. Our employees are top notch, but as you fatigue you begin seeing hourly wages projected over their heads, sales per hour sliding by them and general overhead costs counting up like the national debt clock. You recall back when you ran the store yourself, forgetting all the amazing value employees add and the things they do that you would rather not.When things get really bad, when customers start to feel like zeroes and ones, I know it's time to for a break. Sometimes Michael sees it in me first (it has similar effect to cold medicine). Part of this Matrix mode is natural, as it's only by pounding down expenses in this tiny profit margin trade that we survive, let alone thrive. However, it's losing the spirit of the business, and that can't be tolerated.

The antidote is pretty simple, it turns out: Breaks and vacations. Breaks are the kinds of customer appreciation events like our recent Gamerati Game Day, which re-connect myself and staff to why we do this. It's about the customers and the games we love. The cool and really interesting thing about our game day event, as it turned out, was it really wasn't anything special. It was like someone gave us permission to have a game store block party. We had an impromptu sale, some fun open gaming, and a bunch of regular customers enjoying themselves, myself included. We need these kinds of events more often. Sometimes we get so close to the business that we lose focus.

As for vacations, I've learned they're not optional, self-indulgent or something only successful business owners do. They're a requirement to avoid the Matrix effect, of making a dull boy out of Jack. My best ones, like last week, are about unplugging from technology, breaking the work cycle, and letting the staff find the kinks in our process armor. This refining of process is actually pretty critical, to where an owner leaving for a while should really be a regular requirement. Process and crushing costs are all great in a small business, provided you can work on them while preserving the essential nature of the business, which should be joyous and full of wonder.

Wednesday, September 21, 2011

The technical heart of my business is the point-of-sale machine, the monster database, cash register, order processor that drives me mad on a regular basis. I mention this because POS adoption in the game trade, according to my distributors, is something like 30%. Many still use a cash register, recording what they sold on a notepad and ordering by faxing sheets off that pad or, oh god, standing in the aisles and eyeballing what's not there while on the phone with their distributor. Madness.

They order from one primary distributor most of the time, usually once a week. Then they have a couple accounts they use weekly or a couple times a month, like Games Workshop and Wizards of the Coast. Perhaps a couple times a year they have direct only accounts they contact to place small orders. Since I started small like everyone else, I can tell you it looks pretty much like this. My first couple of years I used a primary, a secondary, a tertiary that I used once every couple of months, and Wood Expressions. More were added as I went along, but I was a small player in the area, one of six stores, which was probably a good thing as I ramped up.

The problem with this model is stores run out of product, just as their primary and secondary distributors run out. They have no ability to find another well when their first one, or perhaps two, go dry. We saw our last competitor, primarily a Magic card shop, actually run out of Magic for weeks at a time, because they lacked relationships with enough suppliers.

Small operations also lack the ability to special order product, especially when it's either obscure or out of stock at their two main distributors. There's an entire universe of games that don't exist to them until they find the right supplier. This still plagues us and I'm always on the look out for new games at trade shows and from customers. Customers see the inability to obtain product as laziness or incompetence.

Also, for stores without a POS, managing more relationships seems daunting on its own. They're not likely to "fill in holes" in their inventory or expand beyond that notepad if it hurts their brain just thinking about it. Technology gets you beyond brain hurt. Technology can manage these relationships to some degree.

I think this is why so many stores fall down in their ability to special order or to even have their regular stock on hand. They lack the proper business relationships to satisfy their inventory needs, lack the technology to manage those relationships, and finally, lack the organizational ability (open to buy tracking) to manage the money needed to make the purchases to fill their stores. The Internet and their brick and mortar competitors wallop them. I'll also say that locally, stores with the most suppliers are perceived as the winners. They differentiate themselves from their competitors and stand out in the minds of their customers.

Our supplier universe is much bigger. I'm not bragging. This is not about money or high sales, it's about building relationships. Relationships are free although they take time to develop. These people call you on the phone all the time and want to be your buddy. They have booths at trade shows. Granted, the money to manage those relationships is not free, as in a POS system, but it has always been my belief that you buy a POS system before you open your store, not blunder into one after. Why? Because your purchasing universe will never be this big if you don't, and you'll fart along, never having the time to retrofit one.

Our ordering universe has a primary distributor, who sees about 90% of our purchases, a secondary that gets maybe 3%, and a tertiary, who specializes in card supplies and quick and cheap WOTC restocks. Beyond that we have the large orbiting planets of direct sales companies that are ordered from weekly or twice a month, like Wizards of the Coast, Games Workshop, Konami and BF, which could be Battlefront for some stores but is currently Battlefoam for us. Then we've got a bunch of smaller monthly orders we process, and in the cold outer BDG galaxy, the folks who hear from us once or twice a year. In all, we have about 100 suppliers that would be absolutely impossible to manage without technology and a budget.

We add new suppliers all the time as we try to figure out what our customers want. Yesterday we started ordering from a new distributor in Texas, Brown Box, because they had different style playing cards, some Euro board games the main distributors don't have and discontinued stuff that our customers have asked for (metal spell templates for Pathfinder). We don't have money to buy from all 100 suppliers all the time, but we do have enough wiggle room to order from all of them sometimes.

Saturday, September 17, 2011

When it's a high sales season like Summer or even our six week holiday season (December through mid-January, which includes "grandma money"), there's a kind of fever that infects the brain of a game store owner. It happens gradually, like a frog in a heated pot, but eventually you're convinced that this is normal. This is how it should be. The inevitable success has finally arrived after countless hours of hard work.

The sales are high, the employees are busy and overworked, and maybe even about to crack. You're firing on all cylinders now and the processes you carefully established show their true value or shortcomings. Half a dozen endemic problems you tackle on a regular basis could be solved permanently by the proper application of cold, hard, cash. Much of that cold, hard, cash is in the till right now. Perhaps a new POS system, or new display cases, or some facilities maintenance you've been putting off, or new product lines, or all of the above. Naturally, as a business owner, especially one with aspirations, or perhaps just delusions of grandeur, you begin to think that till money is real, that more will follow until the end of days.

Your brain urges you to problem solve because the impossibility of having all those balls in the air, those half a dozen things that will never get fixed (they change and rotate), just doesn't make sense. This money does make sense. Money solves problems. Spend it now. You slip into the new normal from the usual insanity that makes up the other months of your life, times when making the store run feels like a shell game or a Ponzi scheme. If you are strong, you resist, but usually only in degrees.

Then the sales slow, the customers stop coming and the game trade stops dispensing its sweet, nourishing gravy. Weren't we promised more? You curse the trade and consider all kinds of rain dances to make it last a little longer. Suddenly marketing becomes important, customer appreciation becomes paramount, and that enormous upcoming quarterly sales tax payment slams the brakes on the spending. That kid buying the Kit Kat and a pack of card sleeves while you were putting in that $3,000 order on the phone no longer seems intolerable, but is instead your best bud. What was his name again? This is all just your brain adapting back to reality. It's the Jekyll and Hyde life we live so we don't have to work for the man, or again, if we aspire, the life we live to become the man.

It happens to me twice a year, for seven years now, but it still always takes me a little by surprise. The frog in the pot is me. You tell yourself it won't last. You tell yourself to save up for a rainy day, to pay off loans or to make those huge post-holiday invoice payments. You tell yourself maybe fix one of those six problems and see how it looks in a couple months. You tell yourself a lot of things, but you're tired, overworked, understaffed, and your people are egging you on to expand, to hire, to add inventory, to replace fixtures, even to rent more trash cans for the over sized loads of garbage you're creating (because your brain says you will always create these sized loads), and generally trying to make you successful with what you've managed to temporarily, artificially create.

It's intoxicating and feeds into your ego, because you know you could run that store. You were meant for it. That is your future. The future is now. The sense of accomplishment increases the feedback loop of ego driven delusion, and when it ends, there is some melancholy and depression. Eventually the season runs its course and you longingly wait for the next run. Maybe you'll get a chance to fix a couple more of those six problems, albeit with personal hard work, some barter and a minimum of cash, but other problems will inevitably take their place. Failed stores are often those who can't rotate them properly. Amazing store owners find ways to somehow address them all.

Wednesday, September 7, 2011

Many regions of the country have regular game conventions, local events where people play games and vendors sell their wares. In the Bay Area, we have several and Black Diamond Games attends both Dundracon and Pacificon. I've attended other conventions as well, including a nearly disastrous sci-fi convention and a couple other gaming variants.

So do vendors make money at these events? Lets take a look at the economics of a three day holiday weekend convention.

That's $816 in expenses, assuming that there are no truck rentals, no hotel expenses, and that our heroic convention employee is covering their own food. In reality, we usually cover some of these expenses, but we'll pretend. We'll also assume we're bringing milk crates of stuff to place on tables and we're not bringing a full convention setup with gridwall and fixtures. We'll also ignore the startup costs, such as banners, flyers, and other paraphernalia. Oh, and it assumes our heroic employee is working alone, a daunting task, but one I performed for several years before handing it off (because it's daunting, like I said).

So with a fixed expense number, lets look at a variable one, the cost of goods. The cost of goods overall in our store is 55%. That includes the cost to buy the item, usually around 50% and another 5% in miscellaneous. Miscellaneous includes things like credit card processing fees, shrinkage and shelf wear, and the expense of bags, pens, forms and office supplies, all of which are present at the convention, so we'll keep them.

Our break even then at your average holiday weekend con is one which covers our $816 in expenses with our 45% gross profit margin. That's $1,815 in sales. Can you make $1,815 in sales at a local convention with a thousand people? We can, just barely and with prices of tables increasing and expenses on the rise, it's beginning to look a lot like a losing proposition. Our con sales have decreased year over year since 2007. Going to a con looks even worse when you figure you're reducing the appeal of your brick and mortar store while your employees and a good amount of stock go on vacation to the con for the holiday weekend.

Also, most con vendors will tell you they make nothing near $1,815 in sales. Again, this assumes that 55% cost of goods. If you're a publisher, your cost of goods might only be 10%. For some RPG publishers, it's even lower. Also, most won't factor in their own time, it's something they love, they tell themselves. They get to be close to their fans, they declare with a smile, secretly wondering if they have gas to get home. But that's not very good business, is it? Most game stores will counter that it's a marketing expense, the last refuge of a poor business decision.

What we do for conventions is increasingly bring higher margin items to the cons, such as ding & dent and used items. At cons timed well for the release seasons, we'll usually sell a good mix of 50% new and 50% high margin merchandise. At an end of season or off-season con, our mix is almost entirely high margin stuff, and often at very small average tickets (say $10 versus $100 at the better cons). These are bargains that can't be passed up. I'll also venture to guess that con organizers have no idea nor do they care about any of this.

Most convention organizers would actually prefer not to have retailers in their dealer's room, the dreaded middle men. Instead they want the guy who makes his own silly hats, the woman who sells her armor online, and most importantly, publishers and manufacturers of games. Dundracon makes this very clear by limiting tables to four, and recently raising prices for tables beyond one. They want small. I understand that. Kublacon won't even talk to retailers unless they're also some sort of publisher or distributor as well. So making money at a convention as a retailer is a little counter-intuitive, because really, they don't want you there so the economics don't favor you.

If you're a new store, absolutely go to a con. Do your best to at least break even. Have an enormous banner with your name and location. Hand out flyers and business cards. Sponsor gaming celebrities (we sponsored Dave Arneson and Richard Borg at past cons). Provide prize support for events with your business cards attached to them (we gave out expensive box sets of Flames of War). Let everyone know what you did to get the best marketing bang for your buck and absolutely offer no support for cons that won't let you go. In the end, know that it's likely going to be a marketing expense, with the off chance you'll make a buck.

Friday, September 2, 2011

The culture of the game trade is new release driven. There are simply too many bedroom publishers, Internet sales channels and upstart distributors for anyone to make money unless there's something shiny to drive sales. I spent my first five years in business only making money on strong release months. There are entire game categories that are really just new release engines, such as the various CCGs. Worse, stores are so dependent on these games that most couldn't imagine survival if say, just one of them, Magic: The Gathering, were to go away tomorrow. Many will put up with enormous helpings of crap just to satisfy their cranky CCG customers and retain their business.

The new release culture tends to distort our view of our customers. If you play a "legacy" game, it's in our best interest to move you out of the Dark Ages, albeit a dark age that may only be a few years in our past. Sometimes I look with pity on the D&D 3.0 gamers. For the love of god, I think, what do I have to do to get you to move forward, to progress? I've had occasion to negotiate a new core rulebook deal, just to try to tempt customers to a newer edition. RPGs especially have a ton of legacy players who are just fine with their system, whether it be AD&D or Vampire: The Masquerade. As a store owner, I don't fight it (too much). I support it with a large selection of used games. Legacy D&D is our third most popular RPG if you care to track it that way. In my mind, those people, the legacy players, are the most aberrant of gamer, the grognard.

The other aberrant customer is the mono gamer. There is the classic mono gamer, the chess or backgammon player, who we really can't support. I sell two chess clocks a year, for example, and if you come in looking for a specific one, perhaps a sweep hand clock with a blue case, there's nothing I can really do for you. I am woefully unable to provide the vast supply for the tiny demand. In fact, I recently determined we could turn our backs on all classic games, every chess set, backgammon, mah-jong, cribbage, domino, and poker set and not break a sweat. But these still signify what a game store should be in my mind, so we continue to carry them.

Then there are the Scrabble players, those people who only play their one game. I can do nothing for them. We see this with a few other games too, the Settlers of Catan only players, the Axis & Allies only players, and the occasional fanatic for Monopoly. Just classic Monopoly. Shudder. We've got one Axis & Allies player who comes in a few times a year to check out our A&A selection, scavenge spare parts for A&A and generally question us about the next A&A release. For ... the ... love ... of ... god.

Aberration is obviously in the eye of the beholder, and as Cult of the New cult leaders, store owners are not immune. We are not hucksters, we are True Believers. You don't sell games for years, relying on new stuff to feed our families without it effecting our minds. I pulled the plug on my D&D 3.5 campaign the moment 4th Edition was announced. There was nothing wrong with my campaign, I was just in shiny, Cult of the New mode. The disappointment that followed, the wandering in the RPG wildnerness it led to, and the salvation of a new game to save our social group is a common story. We're all susceptible.

One of the great things about game conventions, like the many around the country this weekend (we'll be at Pacificon), is they're a celebration of gaming. You can surely see new games and even buy them in the dealer's room, but a game convention is about legacy, about all the great games that have come before that shouldn't be forgotten, and it's about the community that plays them. You can usually play any edition of Dungeons & Dragons, war games that haven't seen a store shelf in twenty years (or ever) and games that could never get the critical mass to field a single table in your local game store. Sure, go ahead and buy that new game you've been waiting for this weekend, but if you get a chance, consider playing one of the games that has gone before. Embrace your legacy.